Ben’s Barn

1

“3 Years Later--How worried should I be?”

“Dodging a Bullet?”

“What actions should I take, if any?”

Thoughts from a long-time, long-term investor

Thomas D. McCandless, CFA 914-572-1887

2

Economy

Fixed Income Markets

International

Asset Class – Diversification

Equities

Housing

Conclusions

TONIGHT’S AGENDA

3

Economic Expansions and Recessions

-26.7%

-1.7%

-2.6%

-3.7%

-1.6%-0.6%

-3.2%

-2.2%

-2.9%

-1.4%

-0.3%

-5.1%

0 yrs

1 yrs

2 yrs

3 yrs

4 yrs

5 yrs

1910 1930 1950 1970 1990 2010

Len

gth

of R

eces

sio

n in

Yea

rs

0

25

50

75

100

125

1900 1912 1921 1933 1949 1961 1980 2001

The Great Depression and Post-War Recessions Length and severity of recession

Great Depression: 26.7% decline in real GDP

Most Recent Recession: 5.1% decline in real GDP

Ec

on

om

y

Source: NBER, BEA, J.P. Morgan Asset Management.

Bubble size reflects the severity of the recession, which is calculated as the decline in real GDP from the peak quarter to the trough quarter except in the case of the Great Depression, where it is calculated from the peak year (1929) to the trough year (1933), due to a lack of available quarterly data.

Source: NBER, J.P. Morgan Asset Management.

*Chart assumes current expansion started in July 2009 and continued through September 2011.

Data for length of economic expansions and recessions obtained from the National Bureau of Economic Research (NBER). These data can be found at www.nber.org/cycles/ and reflects information through September 2011.

For illustrative purposes only.

Data reflect most recently available as of 9/30/11.

Length of Economic Expansions and Recessions

Average Length (months):

Expansions: 44 monthsRecessions: 15 months

*

Guide to the MarketsPage 15

4

Employment

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11-1,000

-800

-600

-400

-200

0

200

400

600

'70 '80 '90 '00 '103%

4%

5%

6%

7%

8%

9%

10%

11%

12%

Source: BLS, FactSet, J.P. Morgan Asset Management.


Civilian Unemployment Rate Employment – Total Private Payroll

Ec

on

om

y

50-yr. avg.: 6.0%

Source: BLS, FactSet, J.P. Morgan Asset Management.

Seasonally adjusted Total job gain/loss (thousands)

Aug. 2011: 9.1%

8.8mm jobs lost

2.4mm jobs gained


5

Cyclical Sectors

'98 '00 '02 '04 '06 '08 '1040

45

50

55

60

65

70

75

'75 '80 '85 '90 '95 '00 '05 '100

400

800

1,200

1,600

2,000

2,400

'85 '90 '95 '00 '05 '108

10

12

14

16

18

20

22

24

Ec

on

om

y

Source: (Top left) BEA, FactSet, J.P. Morgan Asset Management. (Top right) Census Bureau, FactSet, J.P. Morgan Asset Management. (Bottom left) Census Bureau,FactSet, J.P. Morgan Asset Management. (Bottom right) Census Bureau, FactSet, J.P. Morgan Asset Management.


Millions, seasonally adjusted annual rateLight Vehicle Sales

Real Capital Goods OrdersNon-defense capital goods orders ex. aircraft, $ bn, seasonally adjusted

Aug. 2011: 571

Housing StartsThousands, seasonally adjusted annual rate

Average: 14.6

Average: 57.5

Aug. 2011: 60.4

Aug. 2011: 12.1

Average: 1,457

'92 '94 '96 '98 '00 '02 '04 '06 '08 '1036

38

40

42

44

46

48

Manufacturing and Trade InventoriesDays of sales, seasonally adjusted

Jul. 2011: 38.6


6

Small Business

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11$0.6

$0.8

$1.0

$1.2

$1.4

$1.6

$1.8

$2.0

$0.8

$0.9

$1.0

$1.1

$1.2

'07 '08 '09 '10 '11-16%

-14%

-12%

-10%

-8%

-6%

-4%

'02 '03 '04 '05 '06 '07 '08 '09 '10 '1180

85

90

95

100

105

110

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on

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Small and Large Firm Profits - Billions $

Source: (Top left) NFIB, FactSet, J.P. Morgan Asset Management. (Top right) BEA, FactSet, J.P. Morgan Asset Management. (Bottom left) NFIB, FactSet, J.P. Morgan Asset Management. (Bottom right) Census Bureau, FactSet, J.P. Morgan Asset Management.

(Top right) Large firm profits defined as adjusted pre-tax corporate profits. Small firm profits defined as adjusted proprietors’ income.

Employment data are from the BLS Business Employment Dynamics Survey, which is released quarterly, and as of March 2011.


NFIB Small Business Optimism Index

Net Change in Employment – ThousandsSmall Business: Availability of Credit

Aug. 2011: 88.1

Small firms

Mar. 2009: 81.0

Small firmsLarge firms

Aug. 2011:-10.7%

Net percent (“easier” – “harder”) compared to 3mo ago, 3mo moving average Small firm defined as having less than 1000 employees

Large firms

-2000

-1500

-1000

-500

0

500

1000

'93 '95 '97 '99 '01 '03 '05 '07 '09


7

Federal Finances

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

Total Government Spending Sources of Financing0%

25%

50%

75%

100%

1960 1970 1980 1990 2000 2010 2020

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

1960 1970 1980 1990 2000 2010 2020

The 2011 Federal BudgetTrillions, USD

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y

Federal Debt (Accumulated Deficits)% of GDP, 1960 – 2021*

2021 estimate: 82.0%

Federal Budget Surplus/Deficit% of GDP, 1960 – 2021*

2012 estimate: -6.2%

Source: U.S. Treasury, BEA, CBO, OMB, J.P. Morgan Asset Management.2011 numbers are based on CBO August Baseline Scenario. *Estimates for 2011 – 2021 are based on August alternative scenario budget projections from the CBO’s “Budget and Economic Outlook: An Update” which was released on August 24, 2011. The alternative scenario assumes an extensionof all Bush tax cuts, annual adjustments to AMT and Medicare payment schedules and spending on operations in Afghanistan and Iraq rising from 2011 levels in line with inflation throughout the forecast period.Note: Years shown are fiscal years (Oct. 1 through Sep. 30). Top right chart displays federal surplus/deficit (revenues – outlays).Data reflect most recently available as of 9/30/11.

Total Spending: $3.6tn

2011 estimate: -8.5%

2011 estimate: 67.6%

Medicare & Medicaid:$830bn (23%)

Defense:$703bn (20%)

Social Security:$726bn (20%)

Other$467bn (13%)

Non-defenseDiscretionary:$650bn (18%)

Net Int.: $221bn (6%) Borrowing$1,284 bn (36%)

Revenues$2,314 bn (64%)


8

Corporate Profits

-$1

$2

$5

$8

$11

$14

$17

$20

$23

$26

'11'09'07'05'03'01

Source: BEA, FactSet, J.P. Morgan Asset Management.

Adjusted After-Tax Corporate Profits (% of GDP)Includes inventory and capital consumption adjustments

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y

S&P 500 Earnings Per ShareOperating basis, quarterly

Source: Standard & Poor’s, J.P. Morgan Asset Management.

EPS levels are based on operating earnings per share.

Most recently available is a 2Q11 99% complete estimate.


Most recent: $24.86

'65 '70 '75 '80 '85 '90 '95 '00 '05 '103%

4%

5%

6%

7%

8%

9%

10%

11%

50-yr. avg.: 6.1%

2Q07: $24.062Q11:10.1%


9

Consumer Finances

10%

11%

12%

13%

14%

15%

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10$0

$10

$20

$30

$40

$50

$60

$70

$80

Personal Savings Rate

'60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '100%

2%

4%

6%

8%

10%

12%

Annual, % of disposable incomeConsumer Balance SheetTrillions of dollars outstanding, not seasonally adjusted

Household Debt Service RatioDebt payments as % of disposable personal income, seasonally adjusted

Total Assets: $72.6 tn

Total Liabilities: $13.9 tn

Homes: 25%

Deposits: 11%

Pension funds: 19%

Other financial assets: 38%

Other tangible: 7%

Mortgages: 72%

Revolving (e.g.: credit cards): 6%Non-revolving: 12%

Other Liabilities: 11%

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y

YTD 2011:4.9%

1Q80: 11.2%

3Q11*: 11.0%

3Q07:14.0%

Source: (Left) FRB, J.P. Morgan Asset Management. Data includes households and nonprofit organizations. (Right) BEA, FRB, J.P. Morgan Asset Management. Personal savings rate is calculated as personal savings (after-tax income – personal outlays) divided by after-tax income. Employer and employee contributions to retirement funds are included in after-tax income but not in personal outlays, and thus are implicitly included in personal savings. Savings rate data as of August 2011. *3Q11 Household Debt Service Ratio is J.P. Morgan Asset Management estimate. Al l other data are as of 2Q11.



10

The Fed and the Money Supply

'02 '03 '04 '05 '06 '07 '08 '09 '10 '112x

3x

4x

5x

6x

7x

8x

9x

10x

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

Federal Funds Rate

Source: Federal Reserve, FactSet, J.P. Morgan Asset Management.

Monetary base is defined as the total amount of a currency that is either circulated in the hands of the public or in the commercial bank deposits held in the central bank's reserves. Money multiplier defined as M2 divided by the monetary base.

Data are as of 9/30/11.

Excess Reserves, Monetary Base and Multiplier$ trillions

Fix

ed

Inc

om

e

'05 '06 '07 '08 '09 '10 '11$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

'85 '90 '95 '00 '05 '100%

2%

4%

6%

8%

10%

12%

14%

Money Supply GrowthYear-over-year growth in M2

Federal Reserve Balance SheetU.S. Federal Reserve, total reserve bank credit, $ trillions

Long-term

Short-term

Aug. 2011: 10.3%

Monetary Base

Excess Reserves

'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '100%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Sep. 30, 2011:0-0.25%

M2 Money MultiplierMonetary Base & Reserves


11

Credit Conditions

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

1990 1993 1996 1999 2002 2005 2008 2011

-22%

'92 '94 '96 '98 '00 '02 '04 '06 '08 '10

2%

4%

6%

8%

10%

12%

Consumer Loans

Residential Mortgages

'98 '00 '02 '04 '06 '08 '10-40%

-20%

0%

20%

40%

60%

80%

100%

Source: (Top left) Federal Reserve, FactSet, J.P. Morgan Asset Management. (Top right) Federal Reserve, FactSet, J.P. Morgan Asset Management. (Bottom left): Federal Reserve, FactSet, J.P. Morgan Asset Management. (Bottom right) SIFMA, J.P. Morgan Asset Management.

All data reflect most recently available releases. 2Q11 and 3Q11 estimates of lending standards on consumer loans are J.P. Morgan Asset Managementestimates. 2011 corporate issuance is through August 2011.


Lending Standards: Consumer Loans Net percent of banks reporting tighter lending standards

Delinquency RatesAll banks, seasonally adjusted

Commercial and Industrial Loans

Consumer Loans

Fix

ed

Inc

om

e

-8%

67%

84%

Commercial and Industrial Loans10.5%

2.2%

3.3%

U.S. Corporate Issuance$ trillions

Total Equity

Total Debt

'92 '94 '96 '98 '00 '02 '04 '06 '08 '10-80%

-60%

-40%

-20%

0%

20%

40%

60%

Consumer & Industrial Loan DemandNet percent of banks reporting stronger demand

Large & Medium FirmsSmall Firms

20%

6%


12

High Yield Bonds

0%

5%

10%

15%

20%

'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10

0¢

10¢

20¢

30¢

40¢

50¢

60¢

70¢

'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10

Average Latest HY Spreads 5.9% 8.1%HY Defaults 4.3% 1.2%

Source (Top chart): U.S. Treasury, J.P. Morgan, J.P. Morgan Asset Management. Default rates are defined as the par value percentage of the total market trading at or below 50% of par value and include any Chapter 11 filing, prepackaged filing or missed interest payments. (Bottom left): J.P Morgan, Moody’s, J.P. Morgan Asset Management. (Bottom right): J.P. Morgan Asset Management. Yield to worst is defined as the lowest potential yield that can be received on a bond without the issuer actually defaulting and reflects the possibility of the bond being called at an unfavorable time for the holder. Spreads indicated are benchmark yields less comparable maturity Treasury yields. Past performance is not indicative of comparable future results. 2011 issuance is as of August 2011.Data are as of 9/30/11.

Fix

ed

Inc

om

e

Historical High Yield Recovery RatesHigh yield bonds, cents on the dollar

High Yield Spreads and Defaults

Spreads

Default Rates

Average: 38.4¢

Annual High Yield Bond IssuanceBillions USD

$0

$50

$100

$150

$200

$250

$300

$350

'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10


13

Municipal Finance

4%

5%

6%

7%

8%

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10

Source (Left chart): Barclays Capital, U.S. Treasury, FactSet, J.P. Morgan Asset Management. (Top right) BEA, J.P. Morgan Asset Management. (Bottom Right) SIFMA,J.P. Morgan Asset Management.

*Excludes maturities of 13 months or less and private placements. 2011 issuance data is as of August 2011.


Fix

ed

Inc

om

e

State & Local Government Debt ServicePercent of current expenditures

Muni/Treasury RatioRatio of Barclays 10-year Municipal Bond yield to 10-year Treasury

Municipal Bond Issuance*Billions USD, revenue and GO issues

'98 '00 '02 '04 '06 '08 '1060%

80%

100%

120%

140%

160%

180%

200%

220%

240%

2Q11: 5.3%

Sep. 30, 2011: 148%

$0

$100

$200

$300

$400

$500

'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11


14

Global Economic Growth

Source: J.P. Morgan Global Economic Research, J.P. Morgan Asset Management.

Forecast and aggregate data come from J.P. Morgan Global Economic Research.


Year-over-year % chg. – forecasts from JPMSIEmerging Market Country Real GDP Growth

Year-over-year % chg. – forecasts from JPMSIDeveloped Market Country Real GDP Growth

3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12

Historical

2Q12

JPMSI Forecast

3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12

Historical

2Q12

JPMSI Forecast

Inte

rna

tio

nal

-2%

0%

2%

4%

6%

8%

10%

Developed Countries

Germany Canada France U.S. Italy U.K. Japan

-2%

0%

2%

4%

6%

8%

10%

Emerging Markets China India Mexico Russia Korea South Africa Brazil


15

European Crisis: Financial System Risks

-1%

0%

1%

2%

3%

4%

'98 '00 '02 '04 '06 '08 '10

Source: IMF, FactSet, Bloomberg, BIS, J.P. Morgan Asset Management.


Inte

rna

tio

nal

European Bank Exposure – $ BillionsPeripheral Spreads to German Bunds10-year benchmark bonds, % spread

Derivative claims

Exposure of all European banks to each country’s public sector, banking sector and derivative claims

Sep-08 May-09 Dec-09 Jul-10 Feb-11 Sep-110%

5%

10%

15%

20%

25%

Greece:20.1%

Portugal: 10.2%

Ireland:5.5%

Italy:3.7%Spain:3.2%

Sovereign debt claims and bank claims

Interbank Short-term Lending Rates3mo LIBOR – 3mo UST, 3mo EURIBOR – 3mo German Bund

European banking stress

U.S. banking stress

$0

$100

$200

$300

$400

$500

Greek Portuguese Irish Spanish Italian U.S. banks exposure to

all GIIPS


16

Europe - Deleverage

• Problem: Too Much Gov’t Debt & Too Little Growth

• Credit concentration: 80% vs 25%

Solvency vs Liquidity

• Resolution: ECB Intervention

Reduced Standard of Living

17

Asset Class Returns

10-yrs

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 YTD 3Q11 '01 - '10

REITsDJ UBSCmdty

MSCIEME

REITsMSCIEME

REITsMSCIEME

Barclays Agg

MSCIEME

REITsBarclays

AggBarclays

AggMSCIEME

13.9% 23.9% 56.3% 31.6% 34.5% 35.1% 39.8% 5.2% 79.0% 28.0% 6.7% 3.8% 350.0%

Market Neutral

Barclays Agg

Russell 2000

MSCIEME

DJ UBSCmdty

MSCIEME

MSCI EAFE

Market Neutral

MSCI EAFE

Russell 2000

Market Neutral

Market Neutral

REITs

9.3% 10.3% 47.3% 26.0% 17.6% 32.6% 11.6% 1.1%* 32.5% 26.9% 4.4% -1.1% 178.0%

Barclays Agg

Market Neutral

MSCI EAFE

MSCI EAFE

MSCI EAFE

MSCI EAFE

DJ UBSCmdty

Asset Alloc.

REITsMSCIEME

Asset Alloc.

Asset Alloc.

Russell 2000

8.4% 7.4% 39.2% 20.7% 14.0% 26.9% 11.1% -23.8% 28.0% 19.2% -5.9% -9.9% 84.8%

Russell 2000

REITs REITsRussell

2000REITs

Russell 2000

Market Neutral

Russell 2000

Russell 2000

DJ UBSCmdty

REITsDJ UBSCmdty

Asset Alloc.

2.5% 3.8% 37.1% 18.3% 12.2% 18.4% 9.3% -33.8% 27.2% 16.7% -6.1% -11.3% 80.2%

MSCIEME

Asset Alloc.

S&P500

Asset Alloc.

Asset Alloc.

S&P500

Asset Alloc.

DJ UBSCmdty

S&P500

S&P500

S&P500

S&P500

Market Neutral

-2.4% -5.4% 28.7% 12.5% 8.0% 15.8% 7.3% -36.6% 26.5% 15.1% -8.7% -13.9% 76.9%.

Asset Alloc.

MSCIEME

Asset Alloc.

S&P500

Market Neutral

Asset Alloc.

Barclays Agg

S&P500

Asset Alloc.

Asset Alloc.

DJ UBSCmdty

REITsBarclays

Agg-3.4% -6.0% 25.2% 10.9% 6.1% 14.9% 7.0% -37.0% 22.5% 12.7% -13.7% -15.1% 76.3%

S&P500

MSCI EAFE

DJ UBSCmdty

DJ UBSCmdty

S&P500

Market Neutral

S&P500

REITsDJ UBSCmdty

MSCI EAFE

MSCI EAFE

MSCI EAFE

MSCI EAFE

-11.9% -15.7% 22.7% 7.6% 4.9% 11.2% 5.5% -37.7% 18.7% 8.2% -14.6% -19.0% 47.1%.

MSCI EAFE

Russell 2000

Market Neutral

Market Neutral

Russell 2000

Barclays Agg

Russell 2000

MSCI EAFE

Barclays Agg

Barclays Agg

Russell 2000

Russell 2000

DJ UBSCmdty

-21.2% -20.5% 7.1% 6.5% 4.6% 4.3% -1.6% -43.1% 5.9% 6.5% -17.0% -21.9% 41.7%

DJ UBSCmdty

S&P500

Barclays Agg

Barclays Agg

Barclays Agg

DJ UBSCmdty

REITsMSCIEME

Market Neutral

Market Neutral

MSCIEME

MSCIEME

S&P500

-22.3% -22.1% 4.1% 4.3% 2.4% -2.7% -15.7% -53.2% 4.1% -2.5% -21.7% -22.5% 15.1%

As

se

tCla

ss

Source: Russell, MSCI, Dow Jones, Standard and Poor’s, Credit Suisse, Barclays Capital, NAREIT, FactSet, J.P. Morgan Asset Management. The “Asset Allocation” portfolio assumes the following weights: 25% in the S&P 500, 10% in the Russell 2000, 15% in the MSCI EAFE, 5% in the MSCI EMI, 30% in the Barclays Capital Aggregate, 5% in the CS/Tremont Equity Market Neutral Index, 5% in the DJ UBS Commodity Index and5% in the NAREIT Equity REIT Index. Balanced portfolio assumes annual rebalancing. All data except commodities represent total return for stated period. Past performance is not indicative of future returns. Data are as of 6/30/11, except for the CS/Tremont Equity Market Neutral Index, which reflects data through8/31/11. “10-yrs” returns represent cumulative total return and are not annualized. These returns reflect the period from 1/1/01 – 12/31/10. Please see disclosure page at end for index definitions. *Market Neutral returns include estimates found in disclosures.Data are as of 9/30/11.


18

Global Equity Valuations – Developed Markets

World (ACWI)

EAFE France Germany Japan U.K. AustraliaSwitzerland

Canada United States

Source: MSCI, FactSet, J.P. Morgan Asset Management.

Note: Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (Fwd. P/E), price to current book (P/B), price to last 12 months’ cash flow (P/CF) and price to last 12 months’ dividends normalized using means and average variability over the last 10 years. The grey bars represent valuation index variability relative to that of the All Country World Index (ACWI). See disclosures page at the end for metric definitions.


Developed Market Countries

Std

De

v fr

om

Glo

ba

l Ave

rag

e

Inte

rna

tio

nal

Expensive relative to own

history

Expensive relative to

world

Cheap relative to own history

Average

Current

Cheap relative to

world

Example

+3 Std Dev

+2 Std Dev

+1 Std Dev

Average

-1 Std Dev

-2 Std Dev

-3 Std Dev

+5 Std Dev

+4 Std Dev

-4 Std Dev

+6 Std Dev

-5 Std Dev

Fwd. P/E P/B P/CF Div. Yld. Fwd. P/E P/B P/CF Div. Yld.

World (ACWI) -1.93 9.9 1.5 5.6 3.1% 14.1 2.2 7.8 2.4%

EAFE Index -2.75 9.4 1.2 4.5 4.1% 13.6 1.8 6.8 3.0%

France -3.40 8.2 1.0 3.9 5.2% 12.3 1.8 6.4 3.1%

Germany -3.22 7.9 1.1 3.8 4.3% 12.6 1.5 5.3 2.9%

Japan -2.37 11.7 0.9 3.2 2.5% 18.8 1.5 5.5 1.5%

U.K. -2.27 8.4 1.5 6.4 4.2% 12.1 2.1 8.6 3.6%

Australia -1.96 10.0 1.6 7.2 5.2% 13.9 2.2 10.9 4.1%

Switzerland -1.61 11.0 1.9 6.2 3.9% 13.9 2.5 9.8 2.4%

Canada -1.20 11.1 1.7 6.8 2.8% 14.2 2.1 8.2 2.2%

United States -0.74 10.6 1.8 7.2 2.2% 15.1 2.6 9.2 1.9%

Current Composite

Index

Current 10-year avg.


19

Global Equity Valuations – Emerging Markets

World(ACWI)

EM Index

Russia Brazil China Taiwan Korea South Africa

Mexico India

Inte

rna

tio

nal

Emerging Market Countries

Expensive relative to own

history

Expensive relative to

world

Cheap relative to own history

Average

Current

Cheap relative to

world

Example

Std

De

v fr

om

Glo

ba

l Ave

rag

e

+3 Std Dev

+2 Std Dev

+1 Std Dev

Average

-1 Std Dev

-2 Std Dev

-3 Std Dev

+5 Std Dev

+4 Std Dev

-4 Std Dev

+6 Std Dev

-5 Std Dev

Source: MSCI, FactSet, J.P. Morgan Asset Management.

Note: Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (Fwd. P/E), price to current book (P/B), price to last 12 months’ cash flow (P/CF) and price to last 12 months’ dividends normalized using means and average variability over the last 10 years. The grey bars represent valuation index variability relative to that of the All Country World Index (ACWI). See disclosures page at the end for metric definitions.


Fwd. P/E P/B P/CF Div. Yld. Fwd. P/E P/B P/CF Div. Yld.

World (ACWI) -1.93 9.9 1.5 5.6 3.1% 14.1 2.2 7.8 2.4%EM Index -2.25 8.8 1.5 5.0 3.2% 11.0 1.9 6.2 2.7%

Russia -3.53 4.7 0.8 3.2 2.8% 8.2 1.4 5.4 2.1%

Brazil -2.94 7.9 1.3 4.3 4.1% 9.4 1.9 5.5 3.7%

China -2.54 7.6 1.4 5.3 3.8% 12.5 2.1 8.3 2.6%

Taiwan -1.88 12.3 1.7 5.7 4.6% 15.2 1.9 7.0 3.3%

Korea -1.68 8.1 1.2 3.5 1.6% 9.1 1.4 4.1 1.9%

South Africa -1.18 10.1 2.1 7.5 3.6% 11.1 2.4 7.7 3.2%

Mexico 0.20 13.5 2.4 6.2 1.8% 12.9 2.5 7.3 2.1%

India 1.43 13.0 2.4 9.8 1.5% 14.7 3.2 12.6 1.6%

Current Composite

Index

Current 10-year avg.


20

Dividend Income: Domestic and Global

Equity Dividend Yields

Source: (Top chart) Standard & Poor’s, Ibbotson, J.P. Morgan Asset Management. (Bottom left) FactSet, NAREIT, J.P. Morgan As set Management. Yields shown are that of the appropriate FTSE NAREIT REIT index, which excludes property development companies. (Bottom right) FactSet, MSCI, J.P. Morgan Asset Management. Yields shown are that of the appropriate MSCI index.


S&P 500 Total Return: Dividends vs. Capital Appreciation

REIT Dividend YieldsMajor world markets by capitalization Major world markets by capitalization

As

se

tCla

ss

4.7% 5.4% 6.0% 5.1% 3.3% 4.2% 4.4% 2.5%1.8%

4.1%

13.9%

-5.3%

3.0%

13.6%

4.4%1.6%

12.6% 15.3%

-2.7%

5.5%

-10%

-5%

0%

5%

10%

15%

20%

1926 - 1929 1930's 1940's 1950's 1960's 1970's 1980's 1990's 2000's 1926 to 2009

Average annualized returns Capital appreciationDividends

4.1%

6.6% 6.5%6.2%

5.9%5.4%

4.8%4.4%

0%

1%

2%

3%

4%

5%

6%

7%

U.S. Singapore Australia France Canada Japan Global U.K.

2.3%

5.1% 5.0%

3.9%3.8%

3.1%2.8%

2.4%

0%

1%

2%

3%

4%

5%

6%

U.S. Australia France U.K. Switzerland ACWI Canada Japan

10-year government bond yield

10-year government bond yield


21

Global Commodities

'02 '03 '04 '05 '06 '07 '08 '09 '10 '110

100

200

300

400

500

600

0

500

1000

1500

2000

2500

'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

Source: Dow Jones/UBS, FactSet, J.P. Morgan Asset Management.

Commodity prices represented by the appropriate DJ/UBS Commodity sub-index.


Source: USDA, BP Statistical Review of World Energy, J.P. Morgan Asset Management.


As

se

tCla

ss

Commodity Prices Weekly index prices rebased to 100

Precious metals

Industrial metals

Energy

Livestock

Grains

Oil Demand: Emerging Markets Share Emerging markets as % of total global oil consumption

Grain Demand: Emerging vs. Developed MarketsMillions of metric tons

Emerging Markets

Developed Markets

30%

32%

34%

36%

38%

40%

'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10


22

Gold

Year Troy Ounces Total Value

2000 83.3 mm $23 bn

2001 83.6 mm $23 bn

2002 82.0 mm $25 bn

2003 81.7 mm $30 bn

2004 77.8 mm $32 bn

2005 79.4 mm $35 bn

2006 76.2 mm $46 bn

2007 75.9 mm $53 bn

2008 73.6 mm $64 bn

2009 78.8 mm $77 bn

World Gold Production

'75 '80 '85 '90 '95 '00 '05 '10$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

Source: (Left chart) EcoWin, BLS, U.S. Department of Energy, FactSet, J.P. Morgan Asset Management. (Right table) U.S. Geological Survey, World Gold Council, J.P. Morgan Asset Management. CPI adjusted gold values are calculated using month averages of gold spot prices divided by the CPI value for that month. CPI is rebased to 100 at the start of the chart.


Gold Prices

As

se

tCla

ss

$ / oz

Sep. 2011: $318.99

Sep. 2011: $1,620.00

Jan. 1980: $850.00

Jan. 1980: $433.72

Gold, Inflation adjusted

Gold


23

Deploying Corporate Cash

'02 '03 '04 '05 '06 '07 '08 '09 '10 '1120%

30%

40%

50%

60%

Corporate Cash as a % of Current Assets

Cash Returned to ShareholdersDividend Payout Ratio

S&P 500 companies – cash and cash equivalents, quarterly

Rolling 4-quarter averages, S&P 500, billions USD

Source: Standard & Poor’s, FRB, Bloomberg, FactSet, J.P. Morgan Securities, J.P. Morgan Asset Management.

(Top left) Standard & Poor’s, FactSet, J.P. Morgan Asset Management. (Top right) M&A activity is quarterly number of deals of any value and capital expenditures are for nonfarm nonfinancial corporate business. (Bottom left) Standard & Poor’s, FactSet, J.P. Morgan Asset Management. (Bottom right) Standard & Poor’s, Compustat, FactSet, J.P. Morgan Asset Management. Data are most recent as of 9/30/11.

Eq

uit

ies

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '1014%

16%

18%

20%

22%

24%

26%

28%

Corporate Growth

Capital expenditures M&A activity

Quarterly deal volume and nonfarm nonfinancial capex, billions USD

S&P 500 companies, LTM

Dividends per share

Share buybacks

0

200

400

600

800

1,000

1,200

1,400

1,600

$600

$700

$800

$900

$1,000

$1,100

$1,200

$1,300

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

$20

$40

$60

$80

$100

$120

$140

$160

$15

$18

$21

$24

$27

$30

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11


24

Equity Correlations and Volatility

0%

10%

20%

30%

40%

50%

60%

70%

'26 '32 '38 '44 '50 '56 '62 '68 '74 '80 '86 '92 '98 '04 '10

Eq

uit

ies

'26 '32 '38 '44 '50 '56 '62 '68 '74 '81 '87 '93 '99 '05 '110.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

Daily Volatility of DJIA

Source: (Top) Empirical Research Partners LLC, Standard & Poor’s, J.P. Morgan Asset Management. Capitalization weighted correlation of top 750 stocks by market capitalization, daily returns, 1926 – Sep. 29, 2011. (Bottom) Dow Jones, J.P. Morgan Asset Management. Data are represented as three-month moving averages of the daily absolute percentage change in the Dow Jones Industrial Average.Charts shown for illustrative purposes only. Data are as of 9/30/11.

Chart shownin 3-month

moving average

Average: 0.72%

Volatility Level ’08 Peak Latest

DJIA 3.30% 1.37%

Large Cap StocksCorrelations Among Stocks Sovereign Debt

Crisis

Lehman Bankruptcy

Tech Bust & 9/11

1987 Crash

Great Depression /World War II

OPEC Oil Crisis

Cuban Missile Crisis

Average: 26.4%

Sep. 2011: 65.9%


25

Earnings Estimates and Valuation Drivers

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11$0

$20

$40

$60

$80

$100

$120

'94 '96 '98 '00 '02 '04 '06 '08 '108x

12x

16x

20x

24x

28x

S&P 500 Index: Forward P/E Ratio S&P 500 Operating Earnings Estimates

Average: 16.3x

3Q11: $109.91

Sep. 2011: 10.6x

'93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

12x

16x

20x

24x

60

80

100

120

Eq

uit

ies

Source: (Top left) Standard & Poor’s, Compustat, FactSet, J.P. Morgan Asset Management. (Top right) Standard & Poor’s, Compustat, FactSet, J.P. Morgan Asset Management. Earnings estimates are for calendar years and taken at quarter end dates throughout the year. Actual reported are annual operating earnings reported by Standard and Poor’s. (Bottom) Standard & Poor’s, FactSet, University of Michigan, J.P. Morgan Asset Management. Forward Price to Earnings is price divided by consensus analyst estimates of earnings per share for the next twelve months.


Forward P/EConsumer Sentiment

Multiple Expansion and ContractionForward P/E based on consensus EPS estimates Correlation Coefficient: 0.74

Consensus estimates of the next twelve months’ rolling earnings


26

Consumer Confidence

'72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '1040

50

60

70

80

90

100

110

120

130

Source: University of Michigan, FactSet, J.P. Morgan Asset Management.

*Based on regression analysis of monthly data from Jan. 1998 to Feb. 2011.


Consumer Sentiment Index – University of Michigan

Average: 85.3

Ec

on

om

y

Feb. 1975+25.1%

May 1980+13.6%

Oct. 1990+36.5%

Mar. 2003+31.4%

Nov. 2008+21.6%

Sentiment Cycle Low and subsequent 12-month S&P 500 Index return

-1.6 points+6.4+2.7-4.5

10% y-o-y rise in gasoline prices10% y-o-y rise in home prices10% y-o-y rise in the S&P 5001% y-o-y rise in the unemployment rate

Impact on Consumer Sentiment from a…*

Aug. 2011?


27

S&P 500 Index at Inflection Points

'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11600

800

1,000

1,200

1,400

1,600Index level 1,527 1,565 1,131P/E ratio (fwd) 25.6x 15.2x 10.6xDividend yield 1.1% 1.8% 2.3% 10-yr. Treasury 6.2% 4.7% 1.9%

Source: Standard & Poor’s, First Call, Compustat, FactSet, J.P. Morgan Asset Management.

Dividend yield is calculated as the annualized dividend rate divided by price, as provided by Compustat. Forward Price to Earnings Ratio is a bottom-up calculation based on the most recent S&P 500 Index price, divided by consensus estimates for earnings in the next twelve months (NTM), and is provided by FactSet Market Aggregates. Returns are cumulative and based on S&P 500 Index price movement only, and do not include the reinvestment of dividends. Past performance is not indicative of future results.


S&P 500 Index

-49%

Eq

uit

ies

Oct. 9, 2002 P/E (fwd) = 14.1x

777

Mar. 24, 2000 P/E (fwd) = 25.6x

1,527

Dec. 31, 1996 P/E (fwd) = 16.0x

741

Sep. 30, 2011 P/E (fwd) = 10.6x

1,131

+101%

Oct. 9, 2007 P/E (fwd) = 15.2x

1,565

-57%

Mar. 9, 2009 P/E (fwd) = 10.3x

677

+67%

Characteristic Mar-2000 Oct-2007 Sep-2011

+106%


28

The Aftermath of the Housing Bubble

$200

$350

$500

$650

$800

$950

$1,100

'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10'95 '00 '05 '1080

100

120

140

160

180

200

220

240

10%

15%

20%

25%

30%

35%

40%

'75 '80 '85 '90 '95 '00 '05 '10'92 '94 '96 '98 '00 '02 '04 '06 '08 '103

4

5

6

7

8

9

1

2

3

4

5

6

Monthly Rent vs. Monthly Mortgage PaymentVacant properties

Ec

on

om

y

Sources: (Top left) National Association of Realtors, FactSet, J.P. Morgan Asset Management. (Top right) Census Bureau, J.P. Morgan Asset Management. Monthly mortgage payment assumes a 20% down payment at prevailing 30-year fixed-rate mortgage rates; analysis based on median asking rent and median mortgage payment based on asking price. *3Q11 estimates provided by J.P. Morgan Asset Management. (Bottom left) Census Bureau, National Association of Realtors, J.P. Morgan Asset Management. Home sales include both new and existing home sales. Existing home sales include single-family, townhouses, condominiums, and co-ops. Bottom right) Census Bureau, FRB, BEA, J.P. Morgan Asset Management. Calculation assumes a 20% down payment, a 30-year fixed-rate mortgage,excludes property tax and homeowners’ insurance and is expressed as a % of pre-tax income. Data reflect most recently available as of 9/30/11.

Affordability: Mortgage Payment on Average New Home% of average household personal income

Aug. 2011: 10.8%

Home Sales and InventoriesMillions, annual rate, seasonally adjusted

Aug. 2011: 3.6

Home SalesInventories

Aug. 2011: 5.3

3Q11*:$694

3Q11*: $540

$ thousands, seasonally adjustedMedian Existing Home Prices

Aug. 2011: $163K

Monthly Mortgage Payment

Monthly Rent

Nov. 2005: $227K Peak to current:

-28.4%


29

Best Seats on a Train WreckLong-Term Large Cap Buys

Financials: BAC, NTRS, PNC

Energy: BP, CVX, RIG

Health Care: BMY, JNJ, MRK, PG, SYK

Consumer Staples: ADM, COST, MO, SWY, WAG

Industrials: BA, DOW, GE, UNP

Technology: ADP, AAPL, CSCO, HPQ, RIMM

Consumer Discretionary: COH, DLB, NKE, TIF

30

Summary(11-14-08)

• Diversify your assets.• When investing long-term in the stock market:

a) know your pain threshold (use stop loss),

b) Timing your entry is THE most important investment decision.• At the earliest, the stock market may not be poised for a sustained upturn until 1Q09…above norm volatility will continue.

31

Performance 11-14-08 vs 11-14-11

S&P 500: +45%

Tom’s Portfolio (equal wtd): +55%

Tom’s Portfolio (incl 10% stop loss): +60%

Tom’s Portfolio (incl 10% stop loss, Div): +70%

32

New Large Cap RecommendationsFinancials (13%): AXP, BAC, GS, PNC, BEN

Energy (12%): BP, COG, CVX, EP, FTI, RIG

Health Care (12%): BMY, JNJ, MRK, PG, SYK, WPI

Consumer Staples (11%): COST, MO, PEP, WAG, SJM, STPL

Industrials (11%): BA, GE, GWW, GR, MMM, UNP, PH, UPS, WM

Technology (20%): ADBE, ADP, CSCO, IBM, GOOG, MSFT, MA, NTAP, QCOM, TXN

Consumer Discretionary (11%): BWA, COH, DLB, DW, HD, NKE, TIF, TOL, WYNN

Materials (4%): ABX, ADM, DOW, FCX, MON

Telecom Service (3%): T

Utilities (3%): ED, D

33

Summary: Bullish Long Term(11-14-11)

• Diversify your assets.• When investing long-term in the stock market:

a) know your pain threshold (use stop losses),

b) Timing your entry is THE most important investment decision.• Overweight stocks (large cap/ div), underweight bonds.• Combined strength of modestly accelerating US growth, soft landing in Emerging Markets should outweigh slowdown in Europe.• Stock market will remain rangebound another 3—6 months, but should be poised for a sustained upturn by mid-2012…above norm volatility will continue.

34

Marginal and Average Tax Rates

0%

20%

40%

60%

80%

100%

1930's 1940's 1950's 1960's 1970's 1980's 1990's 2000's Current

7%

9%

11%

13%

15%

1947 1957 1967 1977 1987 1997 2007

0%

20%

40%

60%

80%

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007

Average Maximum Tax Rate on Dividends and Capital Gains Tax Rate 40-yr. avg. Current

Dividends 44.6% 15.0% Capital Gains 24.7% 15.0% Ordinary Income 47.9% 35.0%

As

se

tCla

ss

Source: (Top) The Tax Foundation, J.P. Morgan Asset Management. Tax rates based on maximum U.S. individual income tax. (Bottom left) BEA, J.P. Morgan Asset Management. (Bottom right) The Tax Foundation, IRS, J.P. Morgan Asset Management. Personal taxes include taxes on income, personal property and payments for personal licenses (see NIPA tables 3.4 and 3.4u). Data through 2007 is latest available from IRS. Includes all returns with positive AGI. 2007 dollar cut-off/minimum AGI for tax return to fall into top 10%: $113,018; bottom 50%: $32,870. The only tax analyzed here is the federal individual income tax, which is responsible for about 25% of the nation's taxes paid. Data are as of 9/30/11.

Taxes Collected by the Government% of personal income

Lowest since 1950

Share of Federal Income Taxes

Bottom 50% Top 10%% of federal income taxes paid by income segment

2.9%

71.2%


35

Diversification and the Average Investor

20-year Annualized Returns by Asset Class (1991 – 2010)

(Top) Indexes and weights of the traditional portfolio are as follows: U.S. stocks: 55% S&P 500, U.S. bonds: 30% Barclays Capital Aggregate. International stocks: 15% MSCI EAFE. Portfolio with 25% in alternatives is as follows: U.S. stocks: 22.1% S&P 500, 8.8% Russell 2000; International Stocks: 4.4% MSCI EM, 13.2% MSCI EAFE; U.S. Bonds: 26.5% Barclays Capital Aggregate; Alternatives: 8.3% CS/Tremont Equity Market Neutral, 8.3% DJ/UBS Commodities, 8.3% NAREIT Equity REIT Index. Return and standard deviation calculated using Zephyr.Charts are shown for illustrative purposes only. Past returns are no guarantee of future results. Diversification does not guarantee investment returns and does not eliminate risk of loss. Data are as of 9/30/11. (Bottom) Indexes used are as follows: REITS: NAREIT Equity REIT Index, EAFE: MSCI EAFE, Oil: WTI Index, Bonds: Barclays Capital U.S. Aggregate Index, Homes: median sale price of existing single-family homes, Gold: USD/troy oz, Inflation: CPI. Average asset allocation investor return is based on an analysis by Dalbar Inc. which utilizes the net of aggregate mutual fund sales, redemptions and exchanges each month as a measure of investor behavior. Returns are annualized (and total return where applicable) and represent the 20-year period ending 12/31/10 to match Dalbar’smost recent analysis. A

ss

etC

las

s

Traditional Portfolio More Diversified Portfolio

Return: 6.86%Standard Deviation: 11.12%

Return: 7.92%Standard Deviation: 9.99%

Maximizing the Power of Diversification (1994 – 2010)

55%

15%

30% S&P 500

MSCI EAFE

Barclays Agg.

8%8%

8%

22%

9%13%

4%

26%

Equity Mkt. Neutral

Commodities

REIT

S&P 500

Russell 2000

MSCI EAFE

MSCI EM

Barclays Agg.

10.5%

8.0% 7.7%7.2%

6.1%

4.7%

2.8% 2.6% 2.4%

0%

2%

4%

6%

8%

10%

12%

REITS Oil S&P 500 Gold Bonds EAFE Homes Average Investor

Inflation


36

Historical Returns by Holding Period

-37%

-8%

-15%

-2% -2% 1%-1% 1% 2%

6%

1%5%

51%

43%

32%28%

23% 21% 19%16% 17% 18%

12%14%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

1-yr. 5-yr. rolling 10-yr. rolling 20-yr. rolling

Annual total returns, 1950 – 2010Range of Stock, Bond and Blended Total Returns

As

se

tCla

ss

Sources: Barclays Capital, FactSet, Robert Shiller, Strategas/Ibbotson, Federal Reserve, J.P. Morgan Asset Management.


50/50 Portfolio 9.0% $559,744

Bonds 6.2% $336,138

Stocks 10.9% $792,519

Annual Avg. Total Return

50/50 Portfolio

Bonds

Stocks

Growth of $100,000 over 20 years


37

Returns by Sector

Source: Standard & Poor’s, Russell Investment Group, FactSet, J.P. Morgan Asset Management.

All calculations are cumulative total return, not annualized, including dividends for the stated period. Since Market Peak represents period 10/9/07 – 9/30/11. Since Market Low represents period 3/9/09 – 9/30/11.

Forward P/E Ratio is a bottom-up calculation based on the most recent S&P 500 Index price, divided by consensus estimates for earnings in the next twelve months (NTM), and is provided by FactSet Market Aggregates. Trailing P/E ratios are bottom-up values defined as month-end price divided by the last twelve months of available reported earnings. Historical data can change as new information becomes available. Note that P/E ratios for the S&P 500 may differ from estimates elsewhere in this book due to the use of a bottom-up calculation of constituent earnings (as described) rather than a top-down calculation. This methodology is used to allow proper comparison of sector level data to broad index level data. Dividend yields are bottom-up values defined as the annualized value of the most recent cash dividend as a percent of month-end price. Beta calculations are based on 10 years of monthly price returns for the S&P 500 and its sub-indices.

Past performance is not indicative of future returns.


Eq

uit

ies

Finan

cials

Technolo

gy

Health

Car

e

Indus

trial

s

Energy

Cons. Dis

cr.

Cons. Sta

ples

Telec

om

Utiliti

es

Mat

erials

S&P 500

Index

S&P Weight 13.6% 19.4% 12.1% 10.3% 11.6% 10.6% 11.7% 3.3% 4.0% 3.4% 100.0%Russell Growth Weight 3.8% 28.8% 11.0% 12.1% 10.3% 14.4% 13.0% 1.2% 0.1% 5.1% 100.0%

Russell Value Weight 24.7% 8.9% 13.2% 8.8% 11.8% 8.7% 8.2% 5.1% 8.1% 2.6% 100.0%

3Q 2011 -22.8 -7.7 -10.0 -21.0 -20.4 -13.0 -4.2 -8.0 1.5 -24.5 -13.9

2011 YTD -25.2 -5.8 2.5 -14.7 -11.4 -5.7 3.4 -1.5 10.8 -21.8 -8.7

Since Market Peak (October 2007)

-64.0 -7.3 -4.9 -26.6 -18.0 -1.4 18.8 -16.4 -3.9 -25.1 -21.1

Since Market Low (March 2009)

96.7 94.3 53.4 101.7 50.2 128.1 66.6 59.6 68.3 78.5 76.3

Beta to S&P500 1.31 1.34 0.63 1.16 0.86 1.14 0.52 0.89 0.61 1.24 1.00

Forward P/E Ratio 8.4x 11.2x 10.5x 10.7x 8.4x 12.3x 13.4x 14.6x 13.5x 9.2x 10.6x

15-yr avg. 13.0x 24.2x 19.2x 17.2x 15.1x 18.7x 19.0x 17.4x 13.5x 16.3x 17.0x

Trailing P/E Ratio 9.9x 13.0x 14.5x 12.8x 10.4x 14.8x 14.6x 11.6x 14.3x 11.1x 12.5x

20-yr avg. 16.0x 27.2x 24.4x 20.5x 18.4x 19.9x 21.3x 18.3x 14.2x 19.7x 19.8x

Dividend Yield 1.4% 1.1% 2.3% 2.5% 2.1% 1.6% 3.0% 5.5% 4.3% 2.2% 2.3%

20-yr avg. 2.2% 0.6% 1.4% 1.8% 2.0% 1.0% 2.0% 3.7% 4.5% 2.1% 1.7%

P/E

We

igh

tR

etu

rnD

iv


38

Mutual Fund Flows

-$80

-$60

-$40

-$20

$0

$20

$40

Dec '07 Jun '08 Dec '08 Jun '09 Dec '09 Jun '10 Dec '10 Jun '11

Source: Investment Company Institute, J.P. Morgan Asset Management.

Data include flows through August 2011 and exclude ETFs. ICI data are subject to periodic revisions. World equity flows are inclusive of emerging market, global equity and regional equity flows. Hybrid flows include asset allocation, balanced fund, flexible port folio and mixed income flows.


Difference Between Flows Into Stock and Bond FundsU.S. Equity Fund Flows and Market PerformanceBillions, USD, U.S. and international funds, monthlyBillions USD, U.S. equity funds, quarterly

Equity Flows S&P 500 Bond flows exceeded equity flows by $25 billion in August 2011

As

se

tCla

ss

200

400

600

800

1000

1200

1400

1600

-$80

-$60

-$40

-$20

$0

$20

$40

$60

$80

$100

$120

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10

Billions, USD AUM YTD 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

Domestic Equity 3,862 (66) (95) (39) (152) (48) 11 32 112 130 (23) 54 256 176

World Equity 1,468 17 58 31 (83) 138 148 104 66 22 (4) (22) 53 11

Taxable Bond 2,347 96 230 307 19 98 46 26 3 39 124 76 (36) 8

Tax-exempt Bond 473 (23) 11 69 8 11 15 5 (14) (7) 16 12 (14) (12)

Hybrid 830 26 23 23 (18) 24 7 25 42 32 7 9 (31) (14)

Money Market 2,641 (172) (525) (539) 637 654 245 62 (157) (263) (46) 375 159 194

Fund Flows


39

International Economic and Demographic Data

Source: FactSet, CIA, J.P. Morgan Securities, J.P. Morgan Asset Management.

All GDP Growth data are from J.P. Morgan Economics and expressed as % change versus prior quarter annualized with the exception of India, which is from the India Ministry of Statistics & Programme Implementation and represents % change versus a year ago. All GDP Growth data are for 2Q11. GDP values are from the IMF and are based on purchasing power parity. India unemployment is from CIA estimates and is as of 2010, and Italy unemployment is as of 6/30/11. CPI Inflation is shown as % change versus a year ago and all data are for 1Q11. Unemployment rate for developed countries refers to August 2011 and comes from FactSet Economics, Eurostat and Statistics Canada. Demographic data provided by CIA World Factbook at CIA.gov.


Inte

rna

tio

nal

Economics Demographics

GDP USD (B$s)

GDP Per Capita

GDP Growth

Unempl. Rate

Inflation (CPI) Population

Population Growth

Percent Age >65

Median Age

Migration per 1000

Developed

U.S. $15,065 $48,147 1.3% 9.1% 3.3% 313 mm 1.0% 13.1% 36.9 yrs +4.2

Canada 1,391 40,458 -0.4 7.3 3.0 34 0.8 15.9 41.0 +5.7

U.K. 2,254 35,974 0.7 7.9 4.5 63 0.6 16.5 40.0 +2.6

Germany 3,089 37,936 0.5 6.9 2.6 81 -0.2 20.6 44.9 +0.5

France 2,217 35,049 0.0 9.6 2.2 65 0.5 16.8 39.9 +1.5

J apan 4,396 34,362 -2.1 4.3 0.2 126 -0.3 22.9 44.8 -

Italy 1,829 30,166 1.2 8.0 2.3 61 0.4 20.3 43.5 +4.9

Emerging

Russia 2,376 16,687 0.4 6.1 8.2 139 -0.5 13.0 38.7 +0.3

Mexico 1,659 15,121 4.5 5.8 3.4 114 1.1 6.6 27.1 -3.2

Brazil 2,309 11,846 3.1 6.0 7.2 203 1.1 6.7 29.3 -0.1

China 11,316 8,394 7.0 4.1 6.2 1,337 0.5 8.9 35.5 -0.3

India 4,470 3,703 7.6 10.8 9.8 1,189 1.3 5.5 26.2 -0.1


40

J.P. Morgan Asset Management – Index Definitions

All indexes are unmanaged and an individual cannot invest directly in an index. Index returns do not include fees or expenses.

The S&P 500 Index is widely regarded as the best single gauge of the U.S. equities market. This world -renowned index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Although the S&P 500 Index focuses on the large-cap segment of the market, with approximately 75% coverage of U.S. equities, it is also an ideal proxy for the total market. An investor cannot invest directly in an index.

The S&P 400 Mid Cap Index is representative of 400 stocks in the mid-range sector of the domestic stock market, representing all major industries.

The Russell 3000 Index® measures the performance of the 3,000 largest U.S. companies based on total market capitalization.

The Russell 1000 Index ® measures the performance of the 1,000 largest companies in the Russell 3000.

The Russell 1000 Growth Index ® measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.

The Russell 1000 Value Index ® measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.

The Russell Midcap Index ® measures the performance of the 800 smallest companies in the Russell 1000 Index.

The Russell Midcap Growth Index ® measures the performance of those Russell Midcap companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 Growth index.

The Russell Midcap Value Index ® measures the performance of those Russell Midcap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000 Value index.

The Russell 2000 Index ® measures the performance of the 2,000 smallest companies in the Russell 3000 Index.

The Russell 2000 Growth Index ® measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values.

The Russell 2000 Value Index ® measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values.

The MSCI® EAFE (Europe, Australia, Far East) Net Index is recognized as the pre-eminent benchmark in the United States to measure international equity performance. It comprises 21 MSCI country indexes, representing the developed markets outside of North America.

The MSCI Emerging Markets IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. As of June 2007, the MSCI Emerging Markets Index consisted of the following 25 emerging market country indices: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.

The MSCI ACWI (All Country World Index) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. As of June 2009 the MSCI ACWI consisted of 45 country indices comprising 23 developed and 22 emerging market country indices.

The MSCI Small Cap IndicesSM target 40% of the eligible Small Cap universe within each industry group, within each country. MSCI defines the Small Cap universe as all listed securities that have a market capitalization in the range of USD200-1,500 million.

The MSCI Value and Growth IndicesSM cover the full range of developed, emerging and All Country MSCI Equity indexes. As of the close of May 30, 2003, MSCI implemented an enhanced methodology for the MSCI Global Value and Growth Indices, adopting a two dimensional framework for style segmentation in which value and growth securities are categorized using different attributes - three for value and five for growth including forward-looking variables. The objective of the index design is to divide constituents of an underlying MSCI Standard Country Index into a value index and a growth index, each targeting 50% of the free float adjusted market capitalization of the underlying country index. Country Value/Growth indices are then aggregated into regional Value/Growth indices. Prior to May 30, 2003, the indices used Price/Book Value (P/BV) ratios to divide the standard MSCI country indices into value and growth indices. All securities were classified as either "value" securities (low P/BV securities) or "growth" securities (high P/BV securities), relative to each MSCI country index.

The following MSCI Total Return IndicesSM are calculated with gross dividends:This series approximates the maximum possible dividend reinvestment. The amount reinvested is the dividend distributed to individuals resident in the country of the company, but does not include tax credits.

The MSCI Europe IndexSM is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe. As of June 2007, the MSCI Europe Index consisted of the following 16 developed market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.

The MSCI Pacific IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the Pacific region. As of June 2007, the MSCI Pacific Index consisted of the following 5 Developed Market countries: Australia, Hong Kong, Japan, New Zealand, and Singapore.

Credit Suisse/Tremont Hedge Fund Index is compiled by Credit Suisse Tremont Index, LLC. It is an asset-weighted hedge fund index and includes only funds, as opposed to separate accounts. The Index uses the Credit Suisse/Tremont database, which tracks over 4500 funds, and consists only of funds with a minimum of US$50 million under management, a 12-month track record, and audited financial statements. It is calculated and rebalanced on a monthly basis, and shown net of all performance fees and expenses. It is the exclusive property of Credit Suisse Tremont Index, LLC.

The NCREIF Property Index is a quarterly time series composite total rate of return measure of investment performance of a very large pool of individual commercial real estate properties acquired in the private market for investment purposes only. All properties in the NPI have been acquired, at least in part, on behalf of tax-exempt institutional investors - the great majority being pension funds. As such, all properties are held in a fiduciary environment.

The NAREIT EQUITY REIT Index is designed to provide the most comprehensive assessment of overall industry performance, and includes all tax-qualified real estate investment trusts (REITs) that are listed on the NYSE, the American Stock Exchange or the NASDAQ National Market List.

41

J.P. Morgan Asset Management – Index Definitions

The Barclays Capital Taxable Municipal Bond Index is a rules-based, market-value weighted index engineered for the long-term taxable bond market. To be included in the index, bonds must be rated investment -grade (Baa3/BBB- or higher) by at least two of the following ratings agencies if all three rate the bond: Moody's, S&P, Fitch. If only two of the three agencies rate the security, the lower rating is used to determine index eligibility. If only one of the three agencies rates a security, the rating must be investment -grade. They must have an outstanding par value of at least $7 million and be issued as part of a transaction of at least $75 million. The bonds must be fixed rate and must be at least one year from their maturity date. Remarketed issues (unless coverted to fixed rate), bonds with floating rates, and derivatives, are excluded from the benchmark.

Municipal Bond Index: To be included in the index, bonds must be rated investment -grade (Baa3/BBB- or higher) by at least two of the following ratings agencies: Moody's, S&P, Fitch. If only two of the three agencies rate the security, the lower rating is used to determine index eligibility. If only one of the three agencies rates a security, the rating must be investment-grade. They must have an outstanding par value of at least $7 million and be issued as part of a transaction of at least $75 million. The bonds must be fixed rate, have a dated -date after December 31, 1990, and must be at least one year from their maturity date. Remarketed issues, taxable municipal bonds, bonds with floating rates, and derivatives are excluded from the benchmark.

The Barclays Capital Emerging Markets Index includes USD-denominated debt from emerging markets in the following regions: Americas, Europe, Middle East, Africa, and Asia. As with other fixed income benchmarks provided by Barclays Capital, the index is rules-based, which allows for an unbiased view of the marketplace and easy replicability.

The Barclays Capital MBS Index covers the mortgage-backed pass-through securities of Ginnie Mae, Fannie Mae, and Freddie Mac. Aggregate components must have a weighted average maturity of at least one year, must have $250 million par amount outstanding, and must be fixed rate mortgages.

The Barclays Capital Corporate Bond Index is the Corporate component of the U.S. Credit index.

The Barclays Capital TIPS Index consists of Inflation-Protection securities issued by the U.S. Treasury.

The J.P. Morgan EMBI Global Index includes U.S. dollar denominated Brady bonds, Eurobonds, traded loans and local market debt instruments issued by sovereign and quasi-sovereign entities.

The J.P. Morgan Domestic High Yield Index is designed to mirror the investable universe of the U.S. dollar domestic high yield corporate debt market.

The CS/Tremont Equity Market Neutral Index takes both long and short positions in stocks with the aim of minimizing exposure to the systematic risk of the market (i.e., a beta of zero).

The CS/Tremont Multi-Strategy Index consists of funds that allocate capital based on perceived opportunities among several hedge fund strategies. Strategies adopted in a multi -strategy fund may include, but are not limited to, convertible bond arbitrage, equity long/short, statistical arbitrage and merger arbitrage.

*Market Neutral returns for November 2008 are estimates by J.P. Morgan Funds Market Strategy, and are based on a December 8, 2008 published estimate for November returns by CS/Tremont in which the Market Neutral returns were estimated to be +0.85% (with 69% of all CS/Tremont constituents having reported return data). Presumed to be excluded from the November return are three funds, which were later marked to $0 by CS/Tremont in connection with the Bernard Madoff scandal. J.P. Morgan Funds believes this distortion is not an accurate representation of returns in the category. CS/Tremont later published a finalized November return of -40.56% for the month, reflecting this mark-down. CS/Tremont assumes no responsibility for these estimates.

All indexes are unmanaged and an individual cannot invest directly in an index. Index returns do not include fees or expenses.

The Dow Jones-UBS Commodity Index is composed of futures contracts on physical commodities and represents nineteen separate commodities traded on U.S. exchanges, with the exception of aluminum, nickel, and zinc.

The S&P GSCI Index is a composite index of commodity sector returns representing an unleveraged, long -only investment in commodity futures that is broadly diversified across the spectrum of commodities. The returns are calculated on a fully collateralized basis with full reinvestment. Individual components qualify for inclusion in the index on the basis of liquidity and are weighted by their respective world production quantities.

The Barclays Capital U.S. Aggregate Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. These major sectors are subdivided into more specific indexes that are calculated and reported on a regular basis. This U.S. Treasury Index is a component of the U.S. Government index.

West Texas Intermediate (WTI) is the underlying commodity for the New York Merchantile Exchange's oil futures contracts.

The Barclays Capital High Yield Index covers the universe of fixed rate, non-investment grade debt. Pay-in-kind (PIK) bonds, Eurobonds, and debt issues from countries designated as emerging markets (e.g., Argentina, Brazil, Venezuela, etc.) are excluded, but Canadian and global bonds (SEC registered) of issuers in non -EMG countries are included. Original issue zeroes, step-up coupon structures, and 144-As are also included.

The Barclays Capital 1-3 Month U.S. Treasury Bill Index includes all publicly issued zero-coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million or more of outstanding face value. In addition, the securities must be denominated in U.S. dollars and must be fixed rate and non convertible.

The Barclays Capital General Obligation Bond Index is a component of the Barclays Capital Municipal Bond Index. To be included in the index, bonds must be general obligation bonds rated investment -grade (Baa3/BBB- or higher) by at least two of the following ratings agencies: Moody's, S&P, Fitch. If only two of the three agencies rate the security, the lower rating is used to determine index eligibility. If only one of the three agencies rates a security, the rating must be investment-grade. They must have an outstanding par value of at least $7 million and be issued as part of a transaction of at least $75 million. The bonds must be fixed rate, have a dated -date after December 31, 1990, and must be at least one year from their maturity date. Remarketed issues, taxable municipal bonds, bonds with floating rates, and derivatives, are excluded from the benchmark.

The Barclays Capital Revenue Bond Index is a component of the Barclays Capital Municipal Bond Index. To be included in the index, bonds must be revenue bonds rated investment-grade (Baa3/BBB- or higher) by at least two of the following ratings agencies: Moody's, S&P, Fitch. If only two of the three agencies rate the security, the lower rating is used to determine index eligibility. If only one of the three agencies rates a security, the rating must be investment-grade. They must have an outstanding par value of at least $7 million and be issued as part of a transaction of at least $75 million. The bonds must be fixed rate, have a dated-date after December 31, 1990, and must be at least one year from their maturity date. Remarketed issues, taxable municipal bonds, bonds with floating rates, and derivatives, are excluded from the benchmark.

The Barclays High Yield Municipal Index includes bonds rated Ba1 or lower or non-rated bonds using the middle rating of Moody’s, S&P and Fitch.

42

J.P. Morgan Asset Management – Definitions, Risks & Disclosures

Derivativesmay be riskier than other types of investments because they may be more sensitive to changes in economic or market conditions than other types of investments and could result in losses that significantly exceed the original investment. The use of derivatives may not be successful, resulting in investment losses, and the cost of such strategies may reduce investment returns.

Price to forward earnings is a measure of the price-to-earnings ratio (P/E) using forecasted earnings. Price to book value compares a stock's market value to its book value. Price to cash flow is a measure of the market's expectations of a firm's future financial health. Price to dividends is the ratio of the price of a share on a stock exchange to the dividends per share paid in the previous year, used as a measure of a company's potential as an investment.

There is no guarantee that the use of long and short positions will succeed in limiting an investor's exposure to domestic stock market movements, capitalization, sector swings or other risk factors. Investing using long and short selling strategies may have higher portfolio turnover rates. Short selling involves certain risks, including additional costs associated with covering short positions and a possibility of unlimited loss on certain short sale positions.

Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.

The views expressed are those of J.P. Morgan Asset Management. They are subject to change at any time. These views do not necessarily reflect the opinions of any other firm.

Contact J.P. Morgan Funds Distribution Services at 1-800-480-4111 for a fund prospectus. You can also visit us at www.jpmorganfunds.com. Investors should carefully consider the investment objectives and risks as well as charges and expenses of the mutual fund before investing. The prospectus contains this and other information about the mutual fund. Read the prospectus carefully before investing.

J.P. Morgan Asset Management is the marketing name for the asset management businesses of JPMorgan Chase & Co. Those businesses include, but are not limited to, J.P. Morgan Investment Management Inc., Security Capital Research & Management Incorporated and J.P. Morgan Alternative Asset Management, Inc.

JPMorgan Distribution Services Inc., member FINRA/SIPC.

© JPMorgan Chase & Co., October 2011.

Unless otherwise stated, all data are as of September 30, 2011 or most recently available.

Prepared by:Andrew D. Goldberg, Joseph S. Tanious, Andrés Garcia-Amaya, David M. Lebovitz, Brandon D. Odenath and David Kelly.

NOT FDIC INSURED ı NO BANK GUARANTEE ı MAY LOSE VALUE JP-LITTLEBOOK

Past performance is no guarantee of comparable future results.

Diversification does not guarantee investment returns and does not eliminate the risk of loss.

Bonds are subject to interest rate risks. Bond prices generally fall when interest rates rise.The price of equity securities may rise, or fall because of changes in the broad market or changes in a company’s financial condition, sometimes rapidly or unpredictably. These price movements may result from factors affecting individual companies, sectors or industries, or the securities market as a whole, such as changes in economic or political conditions. Equity securities are subject to “stock market risk” meaning that stock prices in general may decline over short or extended periods of time.

Small-capitalization investing typically carries more risk than investing in well-established "blue-chip" companies since smaller companies generally have a higher risk of failure. Historically, smaller companies' stock has experienced a greater degree of market volatility than the average stock.

Mid-capitalization investing typically carries more risk than investing in well-established "blue-chip" companies. Historically, mid-cap companies' stock has experienced a greater degree of market volatility than the average stock.

Real estate investments may be subject to a higher degree of market risk because of concentration in a specific industry, sector or geographical sector. Real estate investments may be subject to risks including, but not limited to, declines in the value of real estate, risks related to general and economic conditions, changes in the value of the underlying property owned by the trust and defaults by borrower.

International investing involves a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the U.S. can raise or lower returns. Also, some overseas markets may not be as politically and economically stable as the United States and other nations. Investments in emerging markets can be more volatile. As mentioned above, the normal risks of investing in foreign countries are heightened when investing in emerging markets. In addition, the small size of securities markets and the low trading volume may lead to a lack of liquidity, which leads to increased volatility. Also, emerging markets may not provide adequate legal protection for private or foreign investment or private property.

Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Use of leveraged commodity-linked derivatives creates an opportunity for increased return but, at the same time, creates the possibility for greater loss.

Can’t find a slide?Please visit www.jpmorganfunds.com/bench to access slides from previous editions that are now “on the bench”.

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